SEC v. Frank Spinosa, Case No. 0:13-cv-62066 (S.D. Fla.); In the Matter of TD Bank, N.A., Admin Proc. No. 3-15512. On September 23, 2013, the SEC announced fraud charges against TD Bank and former executive Frank Spinosa for their roles in the Scott Rothstein Ponzi scheme. Rothstein is currently serving a 50-year prison sentence. According to the SEC’s Order Instituting Proceedings (“OIP”) and complaint, Rothstein claimed to represent plaintiffs who settled their legal claims for large sums payable over time by large corporate defendants. He pretended that these plaintiffs were willing to sell their periodic payments to investors at a discount in exchange for one lump-sum payment. In reality, there were no plaintiffs, defendants or settlements.

According to the SEC, as the Rothstein scam started falling apart, Spinosa misled investors about the safety of their investments which allowed Rothstein to keep raising money. He executed so-called “lock letters” from TD Bank that claimed to restrict Rothstein’s accounts such that TD Bank would only distribute funds in the accounts to the investor’s bank account designated in the lock letter. The claims in the letters were bogus because Spinosa did not apply any procedures to block accounts or restrict Rothstein from moving money out of the trust accounts. The SEC alleges that Spinosa also falsely claimed that the lock letters were commonplace at TD Bank. In reality, the bank had never used them. The SEC further alleges that Spinosa gave false assurances to certain investors that trust accounts held the multi-million dollar balances claimed by Rothstein. Spinosa had access to the account information and knew that there was almost no money in the accounts.

Without admitting or denying the allegations, TD Bank agreed to settle the SEC’s charges by consenting to issuance of the OIP which finds that TD Bank violated Sections 17(a)(2) and (3) of the Securities Act. TD Bank also agreed to pay $15 million and cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act. The SEC’s complaint against Spinosa charges him with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5. The SEC also charged Spinosa with aiding and abetting Rothstein’s violations of Section 10(b) of the Exchange Act and Rule 10b-5. The SEC seeks disgorgement, civil monetary penalties, and injunctive relief. In previous enforcement actions, the SEC charged two feeder funds to the Rothstein Ponzi scheme.